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1 INTRODUCTION
The need to establish and improve the spatial data infrastructure (SDI) can be seen as a purposefuland default goal of each society, which is to ensure overall welfare through economic development.This premise, however, raises the issue of justifiability of financial investment in the spatial datainfrastructure (costs and benefits). Finding the right answer to this question is not easy. It iscertain that we cannot tell who and what is included in the creation of SDI, what costs these
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POVZETEK
Teza, na kateri temelji ta članek, je obstojinfrastrukture prostorskih podatkov v določeni obliki,v določenem trenutku in na določeni ravni, kar jeneposredno povezano z ravnijo tehnološkega indružbenega razvoja. Vzpostavitev infrastruktureprostorskih podatkov dejansko pomeni izboljšanjeobstoječe infrastrukture, kar lahko definiramo kotštevilne dejavnosti z namenom, omogočiti lažji dostopdo obstoječih prostorskih podatkov in njihovodiseminacijo ter lažjo in učinkovitejšo rabo tehpodatkov. Članek obravnava izboljšanje infrastruktureprostorskih podatkov na Hrvaškem kot javni projektstalnega značaja in posebnega družbenega pomena.Ob upoštevanju štiriletnega obdobja izboljšav je bilaizvedena analiza stroškov in koristi, finančnipokazatelji analize pa kažejo, da največjo učinkovitostdosežemo, če je začetni čas projekta krajši.
COST-BENEFIT ANALYSIS OF THE IMPROVEMENT OFSPATIAL DATA INFRASTRUCTURE – CASE STUDY
CROATIAANALIZA STROŠKOV IN KORISTI IZBOLJŠANJA INFRASTRUKTURE PROSTORSKIH
PODATKOV – ŠTUDIJA PRIMERA HRVAŠKE
Vlado Cetl, Miodrag Roić, Siniša Mastelić Ivić
UDK: 528:004.6:711(497.5) Klasifikacija prispevka po COBISS-u: 1.02ABSTRACT
The thesis upon which this paper is based is existenceof a spatial data infrastructure in a specific form, at aspecific moment and at a specific level, which is directlylinked to the level of technological and socialdevelopment. Establishing a spatial data infrastructureactually means improving the existing infrastructureand can be defined as a number of activities aimingat easier access to and dissemination of the existingspatial data, and easier and more efficient use ofthem. This paper considers improvement of the spatialdata infrastructure in Croatia as a public project ofpermanent character and of special social interest.Taking into consideration a four-year improvementperiod, a cost-benefit analysis was made, the financialindicators of which show that the best efficiency isaccomplished if the project initial time period is shorter.
KLJUČNE BESEDEinfrastruktura prostorskih podatkov, izboljšanje,analiza stroškov in koristi
Spatial Data Infrastructure, improvement, Cost-Benefit Analysis
KEY WORDS
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activities make, and what sources of financing are necessary (Rhind, 2000). Implementation andimprovement of SDI includes some significant economic factors: cost-benefit analysis, financing,pricing policy, and the market.
The need to make a cost-benefit analysis for the SDI is of great importance, although they receivevery little attention and few works deal with this topic. Researches in the field of economics areessential to facilitate more informed SDI developments in the future (Masser, 2005). The costsare to be seen through many factors, such as: producers of spatial data, software, hardware,communication infrastructure, human resources, etc. The starting point in such research shouldbe the very definition of the SDI and the included factors as well as of those which tend to beincluded. All current as well as potential users of spatial data have to bear in mind the costs andbenefits. It has been long known that investments in digital data have to generate bigger benefitsthan costs in order to get success. Precise cost-benefit analyses of the implementation and use ofgeoinformation systems are, unfortunately, very rare (Gillespie, 2000).
This paper sees the establishment of SDI as a public project aiming at improvement of theexisting spatial data infrastructure (Cetl, 2007). Taking into consideration a four-year improvementperiod, a cost-benefit analysis of the spatial data infrastructure establishment was made on theexample of Croatia. Croatia is on its way towards full membership in the European Union, so thatimprovement of the existing national spatial data infrastructure is of key importance, as well asjoining the INSPIRE.
2 IMPROVEMENT OF THE SPATIAL DATA INFRASTRUCTURE
SDI has existed for a long time, i.e. since the moment the first spatial data started to be collectedsystematically and presented on plans and maps (Phillips et al., 1999). The traces go back toancient times, to Babylon and Egypt. The Egyptian surveyor “harpedonapt” would, according tothe plans and schemes, re-do measurements of the parcel boundaries after each flood of the Nile.The basis for building an irrigation system, regulating the Nile and building big constructions wasthe keeping of spatial data and their use for specific tasks. The development of SDI from ancienttimes till today is directly linked to the development of the technologies for spatial data collection,information-communication technologies and the level of social development.
Bearing that in mind, we can conclude that SDI has always existed in a certain form, but the levelof its implementation has differed according to a particular moment. Against this backdrop,building or establishment of SDI can be seen as improvement or enlargement of the existing one.In line with this, improvement of SDI can be defined as: a number of activities aiming at easieraccess to and simpler and more efficient use of the existing spatial data. These activities include:
1. Raising social awareness of the importance of spatial data, and managing better coordinationand cooperation between all included parties;
2. Customization of the existing spatial data to the appropriate standards and technologies;
3. Design of metadata that will describe the existing sets of spatial data;
4. Creation of a catalogue and the necessary infrastructure.
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SDI has several important features which, due to its structure, make it different from otherinfrastructures. These features can be considered as the following: wide spread, simple use,flexibility, and the groundwork for other activities and services. So far different models of SDIhave been presented and implemented worldwide. Most of them show identical or very similarcomponents and attributes. Figure 1 shows the logic structure of SDI.
Figure 1. Logic structure of the SDI
Paradigms of the spatial data distribution are to be seen through several time periods from 1960sto 1990s when the concept of spatial data infrastructure started to denote the set-up of standardsfor spatial data exchange and of the national spatial data infrastructures in the USA, GreatBritain, Canada and the European Union (Coleman and McLaughlin, 1997).
Undoubtedly the biggest initiative towards making SDI was President Clinton’s Executive Order12906 (URL 1): “Coordinating Geographic Data Acquisition and Access: The National SpatialData Infrastructure,” from 1994. This order boosted the SDI improvement not only in the USA,but in the whole world (Cetl et al., 2003).
Looking from today’s perspective, the SDI development can be divided into two generations.The first generation was primarily oriented towards technical issues and data as final products(product-oriented), while the second one has been oriented towards users and services (service-oriented). Spatial data users do not only want to access data, but also use various services andanalyses, which includes combining different heterogeneous spatial databases and other sources(Donaubauer, 2004). A prerequisite for this new, user- and service-oriented SDI generation isinteroperability, i.e. a free flow of data in heterogeneous computer surroundings, based on therelevant international standards.
3 COST-BENEFIT ANALYSIS
3.1 Defining the project of improvement of the existing SDI
SDI develops in line with the development of the background, i.e. economic, technological and Vla
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social development. In this context, the SDI improvement at a specific moment, considering itsdistinctiveness, can be seen as a project with predefined goals and a time limit. If a project is in thepublic interest, it is referred to as a public project. In this context, the SDI improvement, consideringits effects and importance, which are in the interest of whole society, should be seen as a publicproject, with no alternative characterizations.
The main goal of the SDI improvement is enhancement of the existing state, i.e. creation of thesurroundings that will enable a simple and efficient access to the existing sets of spatial data forall interested users. This goal is to be accomplished through a number of activities that willimprove the basic components of SDI, which includes customization of the existing spatial datafor wider dissemination and creation of a metadata catalog. Production of new spatial data is notconsidered within this project.
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Figure 2. Organization chart of the SDI improvement project
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A time period for the SDI project is taken to be 4 years (Figure 2). The first year is an initial period,i.e. a period of capital investments in the improvement of particular SDI parts. After the initialperiod, the rest is a period of use and maintenance, in which benefits from the SDI set-up are tobe seen. Definition of the project as a four-year period can be, in Croatia’s context, explained bythe following important factors:
1. Enforcement of the new Act on State Survey and Real Estate Cadastre;
2. The new geodetic data and planar cartographic projections in official use (Bašić, 2007);
3. Joining the EU, which requires an organized spatial data and services market, and full readinessto join the INSPIRE.
The initial period includes improvement of the basic SDI components: partnerships, standards,spatial data customization, the Internet and technical infrastructure, and metadata. The result ofthe initial period is establishment of a catalog as the system central point for the dissemination ofspatial data. At the end of the four-year period, the SDI project is to be redefined according to theaccomplished results, new technologies and users’ requests.
3.2 Cost assessment
Defining everything included within the SDI includes the costs of improvement, as well as otherlinked activities. The sources and extents of costs are to be considered accordingly:
· Costs of spatial data collection and/or maintenance;
· Costs of the material infrastructure (hardware and net resources);
· Costs of data customization to the appropriate standards, creation of metadata and a catalog;
· Costs of human resources;
· Other costs.
If we start from the assumption that data already do exist, the costs of data collection can beomitted, and only the costs of updating and maintaining data are to be considered further. A costassessment simulation of the SDI improvement project in Croatia is presented in Table 1.
Table 1. Cost assessment
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Task Name Outline Number Fixed Cost (HRK) Fixed Cost (EUR) Spatial Data Infrastructure 0 46,600,000.00 6,418,732.78Initial periods 1 36,700,000.00 5,055,096.42 Partnerships 1.1 1,200,000.00 165,289.26 Standards 1.2 1,000,000.00 137,741.05 Internet and technical infrastructure 1.3 10,500,000.00 1,446,280.99 Spatial Data – customization 1.4 9,000,000.00 1,239,669.42 Metadata 1.5 15,000,000.00 2,066,115.70 End of initial period 2 Period of use and maintenance 3 9,900,000.00 1,363,636.36 End of Project 4
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The cost assessment simulation was made for the initial one-year period and the three-yearperiod of use and maintenance. The monetary unit which was used is the Croatian Kuna (Accordingto the exchange rate list of the Croatian National Bank on the day 28th March 2008. 1 EUR =7.26 HRK). The costs from the initial period of investment make up the biggest part of the totalproject costs. The costs are presented for the joint activities, and the biggest amount goes to thecreation of metadata, the Internet and technical infrastructure, and the customization of spatialdata. The existing studies also show that the costs of creation and maintenance of metadata arehigh (URL 2). Referencing of the initial costs to the population number or to the area shows thatthe costs of investment equal HRK 8.27 (EUR 1.11) per capita, or HRK 418.66 (EUR 56.60) perkm2. The costs of annual use and maintenance are evaluated at HRK 3,300,000.00 (EUR454,545.45), and the biggest part covers the staff employment, technical support and capacityconstruction. The presented cost assessment simulation of the SDI project covers the nationallevel, not taking into consideration the lower, i.e. regional and local levels.
To perform particular activities within the project, it is necessary to ensure the appropriate resources.In this case, the main resources in the initial period are the state budget and credit grants. Besidesthe main resources, the producers of spatial data are expected to be included as a resource. It isexpected that their financial contribution will be low in the initial period and will increase in time.A bigger participation of the producers is to come with the development of new services, whichwill be offered to meet the users’ needs and create added value. A prerequisite for this is thecompletion of the initial period and the set-up of a functional spatial data frame and a metadatacatalog.
3.3 Benefit assessment
Unlike the costs, which can be assessed and approximated with a high degree of certainty,assessment of the benefits is much more complicated. The reason for this is a potentially bignumber of different applications and users who, by using spatial data and information, createfurther improvement and revenue in their organizations, which affects indirectly the whole society.The benefits from the creation and improvement of SDI can be divided into several categories:
· Reduction of redundancy, reduction of costs, and widening of the range of production andservices for spatial data producers;
· Reduction of costs, and widening of the range of production and services for spatial datausers;
· Direct and indirect benefits for the whole society by improving the public information ser-vices.
The key factor in the assessment of benefits is the recognition of spatial data as a national asset.If the data are created for only one or two institutions, then there are no benefits for the wholesociety, which results in redundancies. Re-use of the data and information and sharing of thesources is equally important as the primarily intended use.
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If the benefits are seen with regard to easier access to spatial data, they can be expressed as(Annoni, 2004):
1. approx. 2% saving of working time annually spent in the public sector on searching andobtaining spatial data;
2. saving of approx. 10 hours annually spent on the part of spatial data users.
According to the presented criteria, a benefit analysis was made as given in Table 2.
Table 2. Assessment of direct annual benefits
In the assessment of direct benefits in the public sector, the average of a 40-hour working weekand a pay of 100 HRK per working hour was taken into consideration. The 2 % saving of workingtime, if we calculate it with the assumption of 1000 public officials, amounts up to HRK4,200,000.00 (EUR 578,512.40) annually. The 10-hour annual saving of time in the privatesector and with other users (citizens), assuming that the spatial data and information sector makeup 0.4% of the GDP, results in HRK 17,756.000.00 (EUR 2.445.730,03) of direct benefits.Assessment of the total annual direct benefits equals HRK 21,956,000.00 (EUR 3,024,242.43).Experiences from countries with a well developed spatial data infrastructure show that spatialdata and information sector make up more than 0.6% of GDP (URL 3).
3.4 Calculations of financial indicators
As the key conditions for deciding on the acceptance or rejection of a project, in a cost-benefitanalysis financial indicators are calculated. Most commonly the following are used (Acocella,1998):
1. Calculation of the net present value (NPV);
2. Calculation of the internal rate of return (IRR);
If for a project m a set of benefits mtb and a set of costs m
tc are defined in time t, then the sum of
the project present value can be expressed as: ( )=
−+=n
t
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m iBB0
1 where i is a discount rate, and
( ) 11 −+ i a discount factor. The costs can be defined similarly: ( )=
−+=n
t
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m iCC0
1 .
The absolute net present value is defined as a deduction between the benefits and the costs of aproject, i.e.:
mmm CBNPV −= (1)
HRK EUR Public sector 4,200,000.00 578,512.40 Private sector and other spatial data users 17,756,000.00 2,445,730.03 Total 21,956,000.00 3,024,242.43
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The basic rule for accepting a project is a positive NPV, i.e. each project with 0>NPV for thegiven discount rate is worth implementing. In the analysis of more mutually exclusive projects, theone with the biggest NPV is chosen.
The second criterion for decisions is the internal rate of return (IRR) which is a discounted ratewhere the sum of discounted benefits equals the sum of discounted costs. This means that IRR is
a rate where 0=NPV . The of a project is a discounted rate defined in the following equation:
( ) ( )= =
−− =+−+n
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0 0
011 or 0=− mm CB (2)
When using IRR as an indicator, a project is considered worthwhile and acceptable if its IRR isbigger than the social discount rate, for which we can at a certain moment assume that it equalsthe market interest rate. With mutually exclusive projects, the one with the highest IRR is chosen.In comparison to the NPV, IRR is a more acceptable indicator because it requires no prior choiceof the discount rate for the purpose of discounting costs. Generally, projects with a negative netpresent value or an internal rate of return lower than 5 % do not satisfy. Such projects are to be re-made or rejected.
Besides the presented criteria, as a financial indicator also the ratio between the net benefit andthe total costs is used, expressed in monetary units, which is called the return on investment orROI.
On the basis of the cost-benefit analysis of the SDI improvement project in Croatia, it is possibleto express the ratio between the costs and the benefits, and calculate the net present value of theproject for a four-year period (Figure 3).
Figure 3. NPV and ROI for a one-year initial period (HRK)
The discount rate was taken to be the current 4.5 % rate of the Croatian National Bank. Thediscount factor is calculated for each year separately, and the project net present value is calculatedas a sum from time t = 0 (the initial period) to time t = n (in this case four years) according toequation (1). In the initial period, i.e. in the project’s first year, there are no benefits, so the netbenefit is the “negative” value of the initial costs HRK - 36,700,000.00 (EUR - 5,055,096.42).
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The benefits are seen only after the initial period, in the second, third and fourth year of theproject, and their net value is calculated as a deduction between the total benefits and costs. Thenet present value is calculated by multiplying the appropriate discount factor and summing-up forthe whole period. Based on the calculations of the ratio between the costs and benefits for a four-year period, the NPV of the SDI project equals HRK 14,584,678.99 (EUR 2,008,908.95). Thepositive net present value of the project justifies its implementation. It is to be mentioned that theNPV amount is not big in absolute terms, which is a direct consequence of the impossibility ofassessment of all indirect improvement benefits in monetary units.
The ratio between the net benefits and the total costs or return on investment (ROI) equals 41.35%, which is also a reliable indicator of the project justifiability. If instead of the net present valuewe calculate the internal rate of return, according to equation (2), we get the IRR of 24.48 %. Suchan IRR is bigger than the social discount rate and it is a reliable indicator of the project justifiability.If the project initial time period is increased to two years, the net present value decreases to NPV= HRK 6,448,554.59 (EUR 888,230.66), and the ratio between the net benefits and the totalROI to 22.11 % (Figure 4).
Figure 4. NPV and ROI for a two-year initial period (HRK)
In the examination of a two-year initial period, the assumption is that the twice smaller benefitsalready come up in the second year of investment, but to the costs of investment in the secondyear the costs of maintenance are added. The costs of maintenance are also twice smaller. Theinternal rate of return in this case equals 15.36 %, which is still an acceptable indicator of theproject justifiability, but also significantly smaller than in the case of a one-year initial period. Byexpanding the initial period to three years, it is to be expected that in the total annual costs for thesecond and third year the maintenance costs will rise. In the second year they equal one third,and in the third year two thirds of the total annual maintenance costs. Also, the assumption isthat the annual benefits are proportional to this. In this case the project NPV is HRK - 1,453,996.87(EUR - 200,275.05), and ROI 1.41 %. The internal rate of return IRR is 1.25 %. These financialindicators are not acceptable and in this case the SDI improvement project is to be rejected. If theinitial period is expanded to four or more years, the financial indicators show even worse values,
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so examination of such cases is not necessary. In Figure 5 the ratios from the aforementionedthree cases are presented.
Figure 5. The ratio of net benefits and annual costs (HRK)
The figure shows a ratio of the net benefits and the total annual costs. The particular cases aremarked with a number in parentheses, depending on the duration of the initial period in years. Itis clear from the figure that the first case (1), in which the initial period lasts one year, is the mostsuitable, since the lines of the net benefit and the annual costs cross in time much sooner than inother two cases (already in the second year of project). In the second case (2) the lines of the netbenefit and the annual costs cross in the third year of the project and in the third case (3) ithappens in the fourth year of project. In line with this and with the financial indicators, which arethe most suitable for the first case, the initial period should be taken to last one year.
The cost-benefit analysis was made for a four-year period, with a simulation of three cases withdifferent durations of the initial period, i.e. the period of capital investments. It should be takeninto consideration that the period of returns brings along various risks with the implementation ofparticular activities, as well as other details that could cause additional costs. However, the SDIimprovement project brings incalculable benefits for the whole society which, along with thecalculable direct benefits, undoubtedly justify the project’s purpose, so that further risk analysescan be omitted.
4 CONCLUSION
Developing countries and countries in transition are facing the challenge to improve their spatialdata infrastructures and provide access to information in line with sustainable development. Oneof the first tasks in this process is development of the national catalog of spatial data andmetadata. The key factors here are the cost-benefit analysis and the choice of an appropriate
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financing model, as well as ensuring lasting maintenance and development of the spatial datainfrastructure.
Improvement of the existing SDI is to be seen as a permanent public project, for the implementationof which it is necessary to devise an efficient strategy which will review the existing state andevaluate the development level of the existing SDI, examine the needs of spatial data producersand users, clearly define goals of the improvement, and plan the activities, an initial time periodand the necessary resources. Each country has to develop such a strategy by itself, usingexperiences from the countries with highly-developed SDI.
This work sets a four-year period for the SDI improvement, after which a redefinition of theproject and further implementation follow. The first year is the initial period of investment, inwhich the basic SDI components are worked on: partnerships, standards, spatial datacustomization, the Internet and technical infrastructure, and metadata. Improvement of the SDIcomponents is done as a number of defined activities with support from appropriate resources.After the initial period, a three-year period of use and maintenance follows, after which theproject is to be redefined according to the users’ requests and new technologies. After definingthe project, a cost-benefit analysis was made. For the purpose of examination, a number of caseswere considered, in which the initial investment period varied from one to three and more years.The financial indicators obtained from the cost-benefit analysis show that the best results areaccomplished if the project initial investment period is shorter.
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URL 1. Executive Order 12906: Coordinating Geographic Data Acquisition and Access: The National Spatial DataInfrastructure. Accessed on 01. 02. 2008. on http://www.fgdc.gov/policyandplanning/executive_order.
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URL 2. INSPIRE Draft Metadata Implementing Rules: Comments Sheet from EuroGeographics. Accessed on 15. 04. 2008. onhttp://www.eurogeographics.org/eng/documents/EuroGeographics_metadataIRCommentsv1.xls.
URL 3. The Value of Spatial Information. Accessed on 18. 04. 2008. www.crcsi.com.au/uploads/publications/PUBLICATION_324.pdf
Prispelo v objavo: 28. april 2008Sprejeto: 4. julij 2008
Dr. sc. Vlado CetlGeodetski fakultet Sveučilišta u Zagrebu, Kačićeva 26, HR-10000, ZagrebE-pošta: [email protected]
Prof. dr. sc. Miodrag RoićGeodetski fakultet Sveučilišta u Zagrebu, Kačićeva 26, HR-10000, ZagrebE-pošta: [email protected]
Prof. dr. sc. Siniša Mastelić IvićGeodetski fakultet Sveučilišta u Zagrebu, Kačićeva 26, HR-10000, ZagrebE-pošta: [email protected]
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